Just because you know the identity of an individual, doesn't mean they are trustworthy. They might be compromised, or they might be willfully doing it for their own personal gain, regardless of their existing reputation (or even, leveraging their existing reputation - bernie madoff was a well known and well respected investment banker).
The reputation aspect doesn't really hold water, as a person's reputation doesn't travel that far, even in this global economy.
It's real easy to see how a negative hit to someone like Bernie Madoff ruins his career, but he's a high profile individual that many people know on sight.
If I started ripping people off, there's nothing to say I couldn't easily mitigate any negative PR by changing names (or on the internet, just changing handles). In more local endeavors, I could make a mint, ruin my name, and just move to another state (or if pressed, another country.)
Contract law still bears an important role in accountability, IMHO.
It's real easy to see how a negative hit to someone like Bernie Madoff ruins his career...
Yeah, about $65 billion too late.
It's not even a question about reputation scaling -- which (as you say) it does not do, which it hasn't ever done, since even in 10,000 BC you could travel to a place beyond the range of your reputation. (Maybe the Internet will change that. The jury is still out on whether it can, as well as on whether the negative consequences of that are too great and we'll have to take steps to ensure that the Internet can't destroy your reputation worldwide. Reputation isn't all smiles and balloons. You can destroy innocent lives with reputation. Happens all the time.)
Reputation just doesn't work in all sorts of situations. Madoff is a prime example, but anyone who uses Twitter, reads The Four Hour Workweek or spends twenty minutes watching TV commercials can find thousands of additional examples. Reputation is easily faked. It is easily bought. It is too readily extrapolated from one narrow field of endeavor to another. It is biased toward members of your family, and toward people who resemble members of your family. It relies on past results to predict future results, and thereby mispredicts events that occur on a longer time scale than the acquisition of a reputation. It works by implicitly assuming its own effectiveness and breaks down in edge cases. ("Why would Mr. Jones feed me Kool-Aid laced with poison? Just think what that would do to his reputation!")
Most importantly, reputation is just a predictive tool. When it fails, it leaves you with no recourse: That is not its job. I can use my accountant's reputation to predict whether he will steal my money. But if he does steal my money, reputation is now useless as a tool for getting my money back. That's what a contract is for. The primary purpose of a contract isn't promoting trust; it promotes trust because its primary purpose is to give me recourse after trust breaks down. I can try to take my money back from my account -- and if that doesn't work I can attempt to take it out of his insurance company, his auditors, or even people he has previously paid (look up clawback in the dictionary -- my accountant just explained it to me).
The Madoff case is a little different because Madoff himself had a tremendous reputation. People weren't throwing their money at some shady anonymous figure, he was supposed to be incredibly successful.
Still unwise of course, but a little more understandable.
That’s easily games as well, though. Bernie Madoff was able to screw over a lot of people based largely on his reputation. While bad, at least that was “just” money and not something safety critical.
Before you try and suggest that the financial authorities are 100% competent, I would remind you that Bernie Madoff did in fact dupe many people for many years. Financial authorities included. In fact it was a non-governmental person who blew the whistle and starting the whole thing tumbling down.
So I'm not saying that it's rampant and everyone is looking the other way. But it's definitely a possibility. What people are SUPPOSED to do and what they ACTUALLY do often don't overlap anywhere near enough.
Distrust of overconfident people is a skill that needs to be taught. A class on this might include film clips of famous con men and failures, from Bernie Madoff to Shai Agassi.
Here's Bernie Madoff, after he was a crook but before he was caught.[1]
Here's Shai Agassi, before Better Place went bust spending about half a billion on their battery swap system and putting about 30 cars on the road.[2]
"I invested with Bernie Madoff because his returns matched my investment goals". Yes, knowing why someone got conned is itself valuable information. But standing on its own, it reads as an endorsement.
I re-read the article and you're right. The article seems to imply Madoff as an exception rather than the common case, but I still feel that if data is being manipulated at such a vast scale where an entire countries economic activity is misrepresented, you will be able to find people as smart as Madoff to 'fit' the data as per requirements.
The facebook reference is pretty off. These guys are not the facebook types I believe. But someone like Madoff would have been found by the law or those he conned.
Bernie Madoff's victims were mostly high net worth individuals (dumb money), not professional investors. While professional investors do occasionally get scammed that's much less common.
But he did not have that name before he started his scheme, right? Same with all the EVE bank scams... none of them were all that famous and started "from scratch" and at first just baited people with normal operations.
The difference is that Madoff never EVER had any real business to begin with and basically just distributed money around and made sure enough was coming in to cover it.
I just think back to some of the stuff I listened to about the Bernie Madoff case where they were saying, essentially, that a lot of the bigger institutions bringing him clients had to have known something was up with the numbers, but they chose not to understand because they were making money and didn't want to rock the boat.
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